STEWART W. FLEISHER
PRACTICE LIMITED TO ESTATE PLANNING,
ADMINISTRATION, AND PROBATE MATTERS
ATTORNEY-AT-LAW
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WELLS FARGO BANK BUILDING
3333 S. BANNOCK ST., SUITE 900
ENGLEWOOD, CO 80110
PHONE (303) 488-9888
FAX (303) 488-9889
WHAT TO DO
WHEN SOMEONE DIES
This outline is designed to give the family an idea of some of
the things which may need to be done when someone dies. Because
family situations differ greatly, because the size and make-up of
estates vary greatly, and because decedents may have very
different estate plans (or lack thereof), this discussion is
general in nature and SHOULD NOT be viewed as legal advice. It
provides a list of some things to be considered, many of which
should be discussed with your attorney.
Some clients may have will-based estate plans, under which a
"Personal Representative" gathers and distributes the estate.
Other clients may have living trust-based estate plans, under
which a "Successor Trustee" gathers and distributes the assets.
In this memo I shall refer to all wills and trusts as "estate
planning documents." I shall refer to the person who gathers and
distributes the estate as the "Executor."
Nevertheless, keep in mind that the personal representative under
a will may have additional court reporting and other court
obligations which may be avoided if the estate is owned by a
living trust or passes under joint tenancy or beneficiary
designations.
I have reviewed several books on settling an estate. Many are
very weak, some outright dangerous. I am pleased to recommend one
book from Nolo Press written by Mary Randolph and entitled "The
Executor's Guide - 2nd Edition." It is reasonably thorough, and
runs over 400 pages, but it not state specific; hence still the
need to consult with a local attorney. It is available through
Barnes & Noble, Amazon, etc., and costs about $35 (soft cover).
PRE-DEATH CONSIDERATIONS: No discussion of what needs to be done
after someone dies would be complete without a discussion of some
of the things to consider when death is imminent:
1)
Prepare and/or update Estate Planning Documents. Consider
leaving assets in trust for the disabled child, the spendthrift child, the child on Medicaid, the child in a bad
marriage, and even the successful child.
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2)
Prepare a list of assets, insurance policies, etc. Discuss
the list and location of relevant documents with your heirs.
3)
Consider gifting and other actions to reduce estate taxes
and/or achieve Medicaid eligibility for nursing home costs.
Consider rolling over 401(k) to IRA.
4)
Update beneficiary designations and review any joint
tenancies. Remember that such assets will not pass pursuant
to your estate plan unless payable to your trust or estate,
which may or may not be advisable depending on the
situation.
5)
Set up Social Security & pension checks for direct deposit.
Set up direct payment of utility bills and insurance from
your checking account. Direct payments to and from your
checking account will reduce the workload for your family if
you become disabled and reduce the chances of lost checks
and lapsing insurance.
6)
Consolidate investment accounts, securities, and dividend
re-investment accounts into one account. It is a lot easier
for your executor to deal with one account here in Colorado
than numerous transfer agents in Boston and New York.
7)
Consolidate bank accounts and CD's into one bank (or a few
banks if FDIC limits are of concern to you.)
8)
Discuss funeral and burial desires with your family. Don't
necessarily pre-pay, but do pre-plan. What is it going to
cost? Get a "General price list" from your local funeral
home.
9)
Write your own obituary - Review the newspaper for examples.
10)
Keep family members informed as to ALL of the above,
including location of important documents and persons to
notify upon of your death. Perhaps they should use your
Christmas card list.
11)
Consider selling assets on which you have a large loss. If
you have a capital loss carry-over, consider recognizing
gains prior to death to offset those losses.
12)
If you have a living trust, be sure your assets are titled
in the name of your trust and that the beneficiary on your
life insurance policies is your trust. For most of our
married clients the primary beneficiary on IRAs should be
your spouse, and then either your children or your trust.
Discuss the latest recommendations for your situation with
your attorney.
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13)
A review of the family planning, estate tax planning, and
even income tax planning with your attorney may be
appropriate once death becomes imminent.
POST-DEATH CONSIDERATIONS:
The job of the executor is to gather the assets, pay the proper
debts, expenses, and taxes, and then distribute the remaining
assets to the beneficiaries pursuant to any will or trust.
Numerous reporting requirements are imposed on the executor to
report to the beneficiaries, the IRS, the probate court, and in
some cases, to the creditors of the decedent and possibly others.
The executor has a duty to protect and preserve the estate's
assets. The executor should attempt to put together an inventory
of all assets and their values as of the date of death. Probate
court requires that this be done within 90 days of death.
Even if there is no probate, we suggest that the beneficiaries be
notified of the known assets and liabilities as soon as possible
after the decedent's death. Keeping beneficiaries notified of
everything is the easiest way to avoid litigation which can
devastate an estate.
The executor should collect the various assets. Valuables, such
as securities, jewelry and other personal items of substantial
value should be kept in a safe place such as a safe deposit box,
to which only executor has access.
If the decedent completed a "Personal Property Memorandum," that
should be consulted as to the disposition of certain of these
valuables.
So how does the executor go about getting assets liquidated or
titled in the name of the estate or reflecting the he/she is now
the trustee? The first step is contact the "keeper of the
title", that is, the bank, the brokerage firm, or the transfer
agent. Each asset will have its own requirements.
If the asset is titled in joint tenancy, all that is usually
needed is a death certificate to vest title in the surviving
joint tenant. A new account form and W-9 for taxes may also be
required.
If the asset has a surviving named beneficiary, all that is
needed is a death certificate and usually a beneficiary claim
form. The insurance company, IRA administrator, or employer will
provide you with their forms. You will need to contact such
organizations and request the appropriate form. They may ask to
see a copy of the death certificate first.
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If the property is titled in just the decedent's name with no
surviving joint tenant or named beneficiary, then it is part of
the decedent's "probate estate" and the disposition of such
assets (and only those assets) is controlled by the decedent's
will. Probate must be opened and "letters" from the court issued
which prove your legal capacity to act on behalf of the decedent'
estate.
There is an exception: If the total probate estate is under
$50,000, a small estate affidavit is usually sufficient to
liquidate the asset or transfer title.
If the asset is owned by your revocable living trust, then your
successor trustee needs to prove to the "keeper of the title"
that the original trustee(s) are now deceased (a death
certificate) and that the successor trust is authorized to act.
Usually a death certificate and the "Affidavit (For Property of
Trust)" or "Statement of Authority" should be sufficient, but
often the "keeper" will request a copy of the first and last
pages of the trust, and the page which lists the successor
trustees. They may also request an attorney's opinion letter
that the trust is valid and still in full force and effect under
local law. We can provide that as needed.
The executor should maintain an accurate record of all deposits
into and withdrawals from these accounts, reflecting the amount
and sources of each deposit and the amount and purpose of each
check drawn.
If the decedent was collecting Social Security benefits, you will
need to notify them and provide a death certificate. Do this in
person if a surviving spouse is involved who will qualify for
larger benefits. A surviving spouse will generally receive the
larger to his or her Social Security payment or the decedent's
payment.
With respect to assets which are not sold immediately, verify
that sufficient insurance coverage is maintained. Who is driving
the decedent's car? Is the family home unoccupied? The answers
to those questions could nullify the existing coverage.
Creditor claims may need to be paid and, depending on whether
they are paid from a probate estate or from the Trust, the
executor may have different responsibilities and latitude. Death
taxes may need to be paid and, even if taxes are not due, many
estates will nevertheless be required to file a federal estate
tax return.
You will need for a new tax ID number for the estate and for each
trust involved. These can be obtained by completing form SS-4
available on-line at www.IRS.gov. There are some exceptions.
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There will be income tax returns due for both the decedent and
the decedent's estate and/or trust. An attorney or accountant
should be consulted. Professional fees may be paid to the
attorney, accountant and others, including the executor, from the
estate assets.
Do you have to wait until all assets have been liquidated before
making distributions? Generally no, but be sure to keep a cash
reserve to cover unexpected debts, expenses, and taxes.
Also be cautious about making distributions before the
"survivorship" period and "creditor period" has expired, as you
could be personally liable for any losses sustained as a result
of such distributions.
The executor may be allowed to distribute assets in kind or sell
assets and distribute cash. The provisions relating to the
distributions to beneficiaries are generally contained in the
estate planning documents.
On final distribution of the remaining assets, it is advisable
for the executor to provide the beneficiaries with a final
accounting and obtain a receipt from each beneficiary. If any
controversy arises, a court hearing (or "Formal Closing") may be
necessary to resolve differences.
Depending on the estate plan, the executor may be required to
hold an inheritance in trust for one or more beneficiaries. The
executor is then responsible for additional reporting, management
of assets, and distributions consistent with the controlling
document.
Although the executor has the final say on many issues, the
executor is held to very high standards: to avoid self dealing,
to handle and invest funds prudently; to treat the beneficiaries
(including himself) fairly; to properly report the inventory of
assets and income and expenses to the beneficiaries. The failure
of the executor in any of these capacities is both grounds for
removal and being held personally liable. The courts tend to deal
very harshly with executors who breach their fiduciary duties.
Many executors have found check lists to be helpful. We have
included the following lists which are fairly extensive. No doubt
many of the items will not apply to every situation. I choose to
be overly thorough, and allow you, the reader, to select which
ones might be applicable to your situation.
If you do not understand a particular item, you may wish to
discuss it with your estate attorney. We would be happy to assist
you in the event you do not have an estate attorney.
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1. INITIAL ITEMS FOR FAMILY TO DO
___ If you are alone, telephone a friend or family member who
can spend the next few hours with you
___ Notify family members
___ Make funeral arrangements
___ Arrange for obituary/Call newspaper. In Denver: 303-892-2511
for guidelines, or 303-892-2307 (weekdays) or 303-893-2312
(weekends) for questions
___ Obtain the appropriate number of death certificates; (four
plus one for each asset. Three accounts at one bank will
require only one certificate. Three cars transferred at
different times will require three original death
certificates. Most places will return the original if you
ask them to do so.)
___ Arrange for care for minor children, pets, etc.
___ Notify your attorney and make an appointment immediately
Often it is beneficial for the family to meet with the
attorney while the family is in town for the funeral
___ Contact the V.A. if decedent was a veteran; Consider burial
at Ft. Logan. VA will provide a headstone, etc.
___ Create a list of the decedent's assets and their values as
of the date of death, indicating the name of the asset,
account number, the manner in which title is held including
if it is in joint tenancy, the value of date of death, and
the name(s) of the beneficiaries, if any
___ Notify the post office of the death and arrange for the
collection of mail for the decedent
___ Avoid entering into contracts for anything, and avoid
spending, gifting or lending large sums of money
___ Make appointment to meet with the attorney, perhaps
while family is in town for the funeral
___ Prepare an agenda or list of questions to discuss with the
attorney
___ Have the attorney prepare written or visual explanation of
the estate plan
2.
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ITEMS EXECUTOR SHOULD BRING TO INITIAL MEETING WITH ATTORNEY
Original estate planning documents
Death certificates
Preliminary Asset and Liability information (estimates are
OK)
List of questions/special concerns/immediate cash needs
CAUTION: DO NOT remove the decedent's name from assets nor file
beneficiary claim forms (on life insurance, IRA's, etc.) before
meeting with the attorney. We often recommend leaving the
decedent's name on a checking account so if you ever get a check
payable to the decedent you have a place to deposit it.
3.
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ITEMS TO DISCUSS AT FIRST MEETING WITH ATTORNEY
Identify and illustrate over-all plan and distribution
scheme
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Review checklist/questionnaire from executor; or give
to executor to complete
Gather preliminary estimate assets and liabilities
Discuss income tax basis adjustment of assets
Determine if the deceased made taxable gifts after 1976
Discuss adequacy of insurance coverage on real and personal
property
Determine title to assets (and beneficiaries if applicable)
Was decedent a trustee, beneficiary, power-holder of any
other trust; get copies of all relevant documents
Determine whether a probate proceeding is necessary
Discuss the need for probate in other states
Discuss assets not under control by executor, such as joint
tenancy assets or assets with beneficiaries
Did decedent and spouse ever live in a community property
state? Is there any "community property"? (The CP states are
LA,TX,NM,AZ,CA,NV,WA,ID,WI,AK)
Review cash requirements
___ Initial death tax estimate: _____________
___ Surviving spouse's cash requirement: ____________
___ Administration expense estimate: ______________
Have executor sign authorizations to obtain records or
information
Have executor to locate and inventory contents of all safe
deposit boxes. Should others/attorney be present?
Arrange for safekeeping of any assets at risk (personal
property)
Discuss liquidation of assets/distributions
Discuss outstanding liabilities of decedent
Discuss notice to creditors procedure (by publication) and
the one-year statute of limitations
Discuss executor's fiduciary duties
Discuss executor's compensation and maintenance of time
records. Discuss bookkeeping requirements (e.g., best to use
one bank account for receipts and disbursements)
Discuss attorney compensation and fee estimates
Discuss need for regularly scheduled meetings
Calendar next follow-up meeting; date:______________________
Discuss need for appraisals and step up/down in basis
Is surviving spouse not a U.S. Citizen?
Discuss Disclaimers and how they might benefit the family
Mail original of Will to probate court clerk
Sign fee agreement letter
Executor's fiduciary duties letter or handout
Authorization to communicate with others
Obtain name, address, phone number, and taxpayer
identification number for each trust or estate beneficiary
Review requirements for specific assets categories:
___ Qualified S Corp. (trust election needed?)
___ Partnership (IRC §754 election? Income tax return?)
___ Family farm or Family business special elections
___ Toxic waste issue with any real property?
___ Any outstanding options or escrow?
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Promissory notes- Delinquent or in foreclosure?
Any business or profession needing immediate attention?
Is there an ESOP?
Federal/state payroll tax reporting
Notice to Dept. of Human Services (Medicaid) required?
Small Estate Affidavit (If probate not opened)
Surviving spouse IRA rollover
Exercise of options (Buy/Sells, Stock options/others)
Any Real Estate under contract?
Statutes of Limitations
___ Tax refund (type):_____________
____________
___ Wrongful death action
____________
___ Creditor Claims:
____________
___ Publication if Probate opened (CPC =one year)
CALENDAR IMPORTANT DEADLINES AND SPECIAL ASSETS
Form 706 estate tax return and State returns (due 9 months
from DOD; or file Form 4768 extension to file
____________
Alternate valuation date (6 months after DOD)
____________
Disclaimer (9 months from DOD)
____________
Form 709 gift-GSTT tax return (4/15 or
extension date in year following gift)
____________
Form 1040 & State final personal income tax
returns (4/15 or extension date)
____________
Form 1041 and State fiduciary income tax
returns (4/15 or extension date)
____________
65-day distribution after 12/31 (Income tax)
____________
Review trust income distribution terms
____________
First trust inventory/accounting due
____________
Status letters to beneficiaries (ASAP)
____________
Periodic attorney/heir meetings
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DOCUMENTS TO BE PREPARED BY ATTORNEY
Prepare new trustee affidavits
Prepare Trust Registration Statement if required by
law.
Send Form 56, Notice Concerning Fiduciary Relationship, to
IRS
Prepare SS-4 to obtain tax ID number on estate and trust(s)
SPOUSAL/BENEFICIARY ESTATE PLANNING CONSIDERATIONS
Review estate plan of surviving spouse; watch for conflicts.
Review trust, will, powers of attorney, and other documents
for adequacy of estate planning
Determine whether any changes need to be made in the
spouse's estate plan
Estimate size of surviving spouse's estate and advise of
strategies to reduce estate taxes on his or her death.
Consider limited estate planning issues of trust
beneficiaries within the trustee's control
Determine generation skipping transfer tax issues.
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Determine if a beneficiary has powers of appointment that
can or should be exercised; determine if beneficiary should
be notified in writing
Discuss FDIC rules if more than $250,000 is held in any one
institution
IF DECEDENT HAS A TAXABLE ESTATE
Does the decedent have a taxable estate; that is, over
$5 million if decedent died in 2011)?
Discuss Alternate Valuation Date?
Discuss how various assets are valued
Discuss who will prepare estate tax return
HOME AND OTHER PROPERTY OPERATION AND MANAGEMENT
Maintain fire and casualty insurance; Pay property taxes.
Inspect for needed maintenance/repairs
Obtain keys; copy of leases, etc.
Notify and work with any property managers: examine
management contract; consider hiring manager; Arrange for
maintenance of structure and landscaping.
Determine if notice to tenants is necessary or advisable;
determine need to change rental payment arrangements
Account for rental and security deposits; pursue any
delinquent rent
Review leases; determine if any leases due to end or be
renewed
Review for risk of toxic contamination
Maintain utilities (gas, electric, and water); protect from
freezing.
Notify assessor of where to send property tax bills
Determine and pay property taxes when due; review assessor's
value; consider appeal if high.
Interview and retain appraisers: consider hiring directly as
attorney's expert to protect privilege; request oral or
draft reports before finalizing.
Determine effect of high or low value on basis and estate
tax
Determine if out-of-state counsel is needed to deal with out
of state property
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PUBLICLY TRADED SECURITIES
Determine title to financial instrument
If held directly, obtain copy of actual security
If held in nominee form, obtain copy of brokerage statement
Value security - generally, the average between the highest
and lowest quoted sales prices on the valuation date
10.
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MORTGAGES AND NOTES (payable TO decedent)
Request copies of all loan documents
Determine if security interests have been recorded
Executor to inform payor of executor's address for payment
of future loan installments
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Determine value of mortgages, promissory notes, or contracts
to sell land; consider applicable discounts; if valued at
less than FMV of unpaid principal plus interest accrued to
DOD, documentation required to support a lower value or
worthlessness
Record releases when paid in full
LIABILITIES, CLAIMS AND DEBTS
Prepare a listing of all tax and non-tax, secured and
unsecured, matured and contingent debts, claims,
liabilities, obligations, liens, etc., of the decedent. Any
lawsuits pending?
Review all loan and other documents; determine if action can
be taken to limit or eliminate contingent liabilities
Consider practical impact of one-year statute of limitations
when dealing with claims
Consider notifying secured creditors of decedent's death to
avoid missing notices of delinquency or default
Determine which debts/claims must be paid; request payment
history; set up payment plan; keep payments current
Determine who is liable for payment: review documents
creating the liability
Coordinate trust administration with litigation counsel if
decedent is a party to litigation at death
LIFE INSURANCE PROCEEDS AND OTHER DEATH BENEFITS
Obtain all original life insurance policies
Review ownership and beneficiary designations
Determine if death benefit is included in taxable estate
Determine if decedent owned policy on the life of another
Determine if any transfers of LI within three years of death
Determine if any transfers for value
Request claim forms from life insurance companies
Request Form 712 for each life insurance policy
File health insurance claims to cover the cost of the
decedent's last illness
Are accidental death benefits applicable?
Remind surviving spouse to apply for SSA funeral benefits
Remind executor to notify SSA of death of decedent to
terminate monthly benefits of decedent; SSA may "grab"
payments made after death from account. Possibility of
overdraft?
Notify Dept. of Human Services within 90 days of death with
copy of death certificate if the decedent received Medicaid
benefits or if the decedent was the surviving spouse of a
person who received such benefits
Apply for veteran benefits if applicable
EMPLOYEE BENEFITS
Pension plans; Stop payment/apply for spousal benefits if
applicable
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401(k) plans - Consider options, including spousal rollover
to IRA; rollover to inherited IRA for non-spouses after
12/31/06.
403(b) plan (similar to 401(k) and offered by non-profit
organizations)
Employee stock ownership plan (ESOP)
IRAs and qualified annuities
Stock options may have to be exercised within 30 days
Request letter from employer, plan administrator, IRA
sponsor or insurance company setting forth all relevant
details including the designated primary beneficiaries and
contingent beneficiaries.
Determine proper valuation of decedent's interest in plans
for estate tax purposes (Form 706)
HOUSEHOLD AND PERSONAL EFFECTS
Value household and personal effects; Consider use of
affidavit if value low.
Appraise items of artistic or intrinsic value (e.g.,
jewelry, furs, silverware, paintings, antiques, books,
vases, rugs, coins or stamp collections) if value of one
item > $3,000, collection of items > $10,000
Review riders on homeowner's insurance policy
Consider safekeeping, security, or storage requirements
Consider videotaping or photographing assets
OTHER ASSETS
Airplanes, boats, automobiles and other automotive equipment
Debts due decedent, other than notes and mortgages
(receivables?)
Farm products, growing crops, timber
Income tax refunds
Intellectual property (e.g., patents, copyrights,
trademarks)
Judgments
Lottery winnings
Mineral, oil and gas rights
U. S. Savings Bonds (Discuss tax issues)
Keep inventory list of all assets, even if not in trust or
in probate estate as they may be needed for estate tax
purposes.
ACCOUNTINGS
Determine what accountings are required (see estate plan)
Consider "over-reporting" to beneficiaries; send copies of
all statements, invoices, payment stubs, letters, etc.
Determine if court approval of accountings is desirable
Send confirming letter to executor and accountant regarding
responsibility for preparation of accountings, form of
accounting, and example format
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Remind executor to deposit all income and receipts in estate
or trust bank account and to write all trust checks from
same bank account to simplify accounting
Obtain written waivers of accounting if desired
Make sure accounting records provide clear tracing of
assets, income, and disbursements for later subtrust funding
PERSONAL INCOME TAXES
Determine who will prepare and file final returns of
decedent
Determine estimated tax payments which may be due for
surviving spouse or other beneficiaries
Joint return: may elect for decedent and surviving spouse
if spouse not remarried before end of year; Thereafter,
surviving spouse files as single unless dependents involved.
Recognition of savings bond interest: if decedent had not
elected to recognize and report interest income, may do so
on final return or may recognize on fiduciary return or
beneficiary's return (Series E or EE bonds)
Medical expenses: may elect as income tax deduction if paid
within one year from DOD; or as debt of decedent on 706
return
FIDUCIARY INCOME TAX RETURNS
Determine who will prepare and file estate/trust returns
File Form SS-4 with IRS to obtain taxpayer identification
number for all new trusts, and for estate if probate opened
Confirm that Form 56 Notice of Fiduciary Relationship with
IRS for new trustee of new irrevocable trusts is filed
If over $600 is paid to third persons (executor, attorney,
accountant, etc.) from trust issue Form 1099 to payees by
1/31; File 1099's with Form 1096 with IRS & CO by 2/28.
Discuss election to have living trust treated as part of
probate estate for income tax filings
Estimate estate/trust income and notify beneficiaries of
their potential tax income based on their distributions
Consider whether distributions within first 65 days of tax
year should be treated as made in prior year
COURT PROCEEDINGS
Deliver original will to court clerk
Determine if probate necessary after verifying title to
assets; If necessary, open probate; notify beneficiaries.
Determine applicability of spousal elective share
DISPOSITION OF NON-TRUST ASSETS
Joint tenancy: File death certificate to vest title in name
of surviving tenant(s); Complete and file supplemental
affidavit as needed.
Beneficiary assets (Life insurance, IRAs, POD accounts,
etc.): File death claim form to vest title in name of
beneficiary or have proceeds paid to beneficiaries.
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Remainder beneficiary of life estate: record affidavit or
other documentation to remove decedent's name
21.
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SALE OF TRUST ASSETS
Determine need for liquidity (estate tax, cash bequest,
claims and debts, administrative costs)
Determine whether cash distribution preferable to in kind
distributions (beneficiaries do not want assets;
beneficiaries as co-owners often a bad idea)
Ascertain if asset cannot be held in successor trust (trust
language prohibits; trust not qualified as S corporation
shareholder)
Restrictions on sale (in documents or in other agreements,
e.g., buy-sells, leases, recorded covenants or restrictions,
rights of first refusal, existing contracts, etc.)
If no preexisting arrangements:
___ Unsolicited buyers
___ Determining listing or sale price
___ Marketing by professional agents (realtors, business
brokers, investment bankers, secondary market makers
for limited partnerships)
___ Private marketing by executor (but consider duty to
obtain best price and terms)
___ Purchases by trustee; potential conflict of interest
issue; Consider full disclosure and consent.
Consider obtaining court approval or instructions to protect
executor
Determine whether to notice beneficiaries or seek approval
(obtain consents or waivers, or give informal notice)
Determine if best deal for estate/trust and beneficiaries
If property to be sold on a carry-back note, best to get
beneficiaries approval first.
Consider effect of sale price on date of death or alternate
valuation
Plan for timing of any gain on sale in best fiscal year for
trust/estate and beneficiaries
Consider effect of basis adjustment upon death
Determine if disposition of IRD item accelerates gain
Involve tax preparer in planning and reporting
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ESTATE TAXES
Review previously filed gift tax returns (Form 709s)
Determine available applicable exclusion amount and
availability of marital and/or charitable deductions.
Determine that the QTIP requirements are met for trusts
benefitting the surviving spouse
Were any assets previously subject to estate taxes within
past 10 years?
Obtain certified copy of will, death certificate, letters
Obtain tax identification numbers of beneficiaries
Obtain copies of pertinent documents, e.g., trusts for which
decedent was trustee, settlor, beneficiary or power holder
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Review all major transfers; review releases of powers made
within 3 years from date of death
Review transfers with retained interests (JT, UTMA, etc.)
Look for powers of appointment; examples:
___ "5 and 5" power not exercised at death
___ "Hanging" Crummey withdrawal rights in ILIT
___ Power to invade trust principal without regard to
ascertainable standards
___ Power to use property to discharge obligation of
support (custodial account)
Review election to deduct administration expenses for estate
taxes vs. income taxes.
Review election to deduct medical expenses paid within one
year of death for estate taxes vs. income taxes on
decedent's final income tax return
QTIP election made on 706 in total or in part (formula for
partial election included on 706)
Reverse QTIP election for allocation of decedent's GSTT
exemption to QTIP property
Determine that surviving spouse is a U.S. citizen; if not,
will she become a U.S. citizen prior to filing the 706;
Create QDOT if necessary and irrevocably assign property to
trust prior filing of 706
Determine if alternate valuation is applicable
6-month extension of time to file return (extend to 15
months from date of death); does not extend payment of
estate taxes.
Determine sufficient reserve to be held by executor until a
favorable closing letter is received
Don't forget to file the state Estate Tax Returns if real
property is owned in other states and if required by such
state. Colorado has not had an estate tax since 2005.
Determine if terms of trust allocate payment of tax; follow
terms where applicable
Take necessary measures provided under federal and state law
to collect reimbursement of taxes from responsible parties
GIFT TAXES
File gift tax returns for taxable gifts of decedent for
which returns have not yet been filed.
Review for bargain sale between family members, adding names
to title on deeds, etc., settlor's payment of someone else's
expenses, interest-free or below market rate loans, child
living in home rent free. Consider gift tax exemption.
Allocate GST exemption between gift and estate tax returns;
if applicable to lifetime transfers, must claim on gift tax
return
GENERATION SKIPPING TRANSFER TAX
Are there any significant Generation Skipping Transfers
Discuss with executor the three types of transfers which
might trigger a GST tax.
14
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25.
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___
___
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Determine The Unused "Generation Skipping Transfer Tax
Exemption" ($5 million in 2011, less prior allocations)
Did the decedent allocate any GST exemption during life?
Were there any "automatic allocations" during life?
Determine if decedent made any lifetime gifts to trusts with
skip persons without properly allocating the GST exemption.
Did decedent make any direct gifts to skip persons in excess
of the annual exclusion amount without making the correct
GST exemption allocation (check values). If yes, determine
the effect of the automatic GST exemption allocation rule.
Decedent's GST exemption may be allocated by executor at any
time on or before the 706 due date including extensions.
Consider always using a formula to allocate GST exemption.
DISCLAIMERS (useful in limited situations:)
To reduce or eliminate marital deduction gift; to fully
utilize decedent's ET exclusion; fund the Family Trust.
Prefer using fractional interest disclaimer stated in terms
of a formula or a percentage disclaimer
To create a marital deduction; Disclaimer by all
beneficiaries other than spouse to pass property to spouse.
To qualify trust for QTIP election
To perfect or increase charitable deduction gift.
To avoid general powers of appointment; consider disclaimer
of 5/5 power, power to invade principal of trust for
"happiness" or "welfare"
To skip a generation and subject property to GSTT to utilize
any unused GSTT exemption of decedent, e.g., a financially
secure beneficiary might disclaim in favor of her children.
To avoid a GSTT, e.g., a grandchild or more remote
descendant can disclaim to prevent a GSTT from being imposed
To avoid multiple administrations and unnecessary death
taxes or possible claims where beneficiary dies within 9
months
Be particularly alert to conflicts of interest in advising
different parties regarding disclaimers; obtain written
waivers of conflict or refer potential disclaimant to
independent counsel
Review technical requirements (IRC §2518)
___ Irrevocable and unqualified
___ Writing signed by disclaimant
___ Identify property interest being disclaimed
___ Deliver disclaimer to the executor or other appropriate
party not later than 9 months after date of death
___ No acceptance of benefits; Disclaimant cannot redirect
property (disclaim special power of appointment in
family trust)
___ Review state law and conform disclaimer to both state
and federal law
Determine to whom the disclaimed property will pass
Review trust instrument for disclaimer directions; review
beneficiary designations.
15
26. DISTRIBUTION AND SUBTRUST FUNDING
___ Determine if any distributions should occur before end of
calendar year (or during the 65-day election period)
___ Assure the validity of the will or trust before any
distributions are made
___ Consider liability of the executor if assets are distributed
to the wrong beneficiaries
___ Consider filing an action for court approval of inventory,
final accounting, and distributions; notice beneficiaries.
___ Consider existence of various liens and debts before
distribution
___ Consider postponing distributions or subtrust funding until
expiration of one-year statute; filing of 706 return; or
receipt of IRS closing letter.
___ Determine whether income triggered on distribution of
assets; Distribution of IRD items or funding pecuniary gifts
with appreciated assets. Advise trustee/beneficiary.
___ Calculate and set aside reserve amount
___ Determine if distribution carries interest one year after
DOD or income earned
___ Obtain valuation of assets to be distributed as of
distribution date, if needed
___ Make outright cash distributions, or transfer title to noncash assets; if distribution is in kind to satisfy a
pecuniary amount note regs. re gain or loss
___ If distributed asset encumbered, have beneficiary formally
assume liability
___ Determine name of each subtrust; communicate to trustee,
accountant.
___ Obtain tax ID number for each new trust, except where income
is attributable to surviving spouse and the spouse's SSN is
used (e.g., marital trust)
___ Review issues re funding the marital deduction gift:
___ Determine what type of formula in trust instrument to
determine required funding method
___ Attempt to distribute appreciating assets which may be sold
during survivor's lifetime to surviving spouse, especially
primary residence.
___ Avoid distribution of life insurance policies on the life of
the surviving spouse to surviving spouse
___ Select date for funding subtrusts; allocations to subtrusts
will be considered effective as of the selected date
___ Obtain valuation of trust assets as of selected date and
complete allocations and transfers of title within a
reasonable period of time (ASAP)
___ Prepare written schedule of assets, with values, allocated
to each subtrust
___ If multiple beneficiaries, review trust instrument re
whether pro rata allocation required, or non-pro rata
allocation is permissible re avoiding taxable sale or
exchange
16
27.
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___
FINAL REVIEW
Review with trustee systems established for trust
administration: bookkeeping, accounts and other records;
verify segregation of trust accounts
Review fiduciary duties with trustee; verify that trustee is
attending to accountings; filing fiduciary income tax
returns; reviewing investments; making distributions
required or permitted under trust agreement; other duties
Distribution any reserve amount held back from distribution
17
Trustees and Executors Duties
(excerpted from publications of the Colorado Bar Association)
©) 2011 by Stewart W. Fleisher, Attorney at Law
3333 S. Bannock St., Suite 900, Englewood, CO 80110 (303) 488-9888
W hat is involved in being the executor of someone's estate or trust? This memo should give you some general
concepts and som e idea of the responsibilities.
If you are dealing with a probate asset, you will be issued "letters" from the court which reflect your appointment
as personal representative. These letters are evidence to third parties of your authority to act on behalf of the
estate. Y ou m ay nee d to order c ertified cop ies of these letters to prese nt to bank s, insurance com panies , etc. If
securities are involved, the letters generally must be issued within 60 days of the requested transfer or sale.
Asse ts own ed by a revoca ble living trust d o not requ ire court au thorization . You m ay, how ever, be req uired to
provide a c opy of the tru st or at le ast an " Affida vit (F or P roperty of T rust)" w hich ev idences y our authority to act.
Your general duties to the beneficiaries include:
1. The duty to be imp artial; that is, not to favo r the interest of on e party ov er anoth er
2. The duty of undivided loyalty (not to put your own
interest in conflict with those of the estate), and
3. The duty to administer the estate with care and prudence.
More specifically, your specific duties include:
1. Colle cting an d taking an inve ntory of the a ssets of the e state
2. Managing these assets during the period of administration and paying the estate bills, including claims of
creditors, expenses of administration and any taxes
3. M aking d istribution to the h eirs or the be neficiaries u nder the will or trust.
In Co lorado, you can ch oose the degree of form ality w ith wh ich you open o r close prob ate and the exte nt of court
supervision over your activities as personal representative. The m ore likely there is to be a challenge by
beneficiaries, the more desirable formal proceedings may be, even though they are more time consum ing and
expe nsive tha n inform al proce edings . Form al proce edings require co urt filings, notice to be neficiaries, an d court
hearings. Formal proce edings give everybod y their day in court on your time sched ule. Informal proceedings,
where there's no notice and no binding orders, are more in the nature of administrative proceedings before the
Re gistrar of the co urt. Ma ny estate s are ope ned inform ally, but close d form ally so as to get the pro tection of a
court order for th e pe rson al re presen tativ e that th e ad m inistration a nd d istrib utio n of the esta te w as d one correctly.
If you are n am ed perso nal repres entative in a w ill you hav e the po we r, prior to your app ointm ent by the court, to
carry ou t written instru ctions of the dece ased re lating to his bo dy, funeral a nd burial a rrangem ents. Yo u m ay beg in
to take and protect the decedent's property. No property should be removed or distributed prior to the opening of
the estate.
Altho ugh as sets ow ned by the dec eden t's living trust can be liquidated , transferred and distributed w ithout cou rt
proceedings, it may be desirable to submit a final inventory and accounting and close formally.
W ithin three months after your appointment you must prepare a written inventory of the assets of the estate on the
court approved form. If it's a supervised administration with a formal closing, the inventory must be filed with the
court. Otherwise, you can simply give it to interested parties without court filing.
W ith a trust the req uirem ents for an in ventory and an acco unting m ay be s pecified in the trust doc um ent.
Regardless, beneficiaries are generally entitled to an inventory and an accounting.
1
Set up an estate accounting system at the beginning of the administration of the estate. You must keep records of
all cash and other financial transactions of the estate and provide written accountings to the beneficiaries. For
supervise d adm inistration or form al closing the acc ounting is filed with th e court.
Promptly after your appointment as the personal representative of the estate, you must prepare a notice of your
appointment and mail it to all those interested in the estate, and file proof with the court that this notice has been
given. The purpose of the notice is to acquaint the interested persons with some of the facts and ground rules
regarding adm inistration of the estate, includ ing the na me and ad dress of the persona l represen tative, w hether a
bond h as bee n filed and the cou rt whe re pape rs relating to the estate are on file. Send a notice to know n creditors
and publish a notice according to the law. Claims which arose before the decedent's death are barred if not
presented within four months after the date of the first publication of this notice. Failure to publish extends the
claim period to one year from the date of death. A claim rising at or after death must be filed no later than four
months following the date when the claim arose.
A claim m ay be either filed with the court or given to you as personal representative. No specific form is required.
For example, a bill that comes in the mail is a properly presented claim (but don't pay bills that are only presented
orally). If you disagree with a claim, you have 60 days to dispute the claim by giving written notice of
disallow ance to the claim ant and filing such n otice of disa llowa nce w ith the cou rt. The cre ditor then h as 60 da ys to
b eg in pro ce ed in gs to en fo rc e th e c la im .
It is also not advisable to pay any claims until the extent of all claims can be determined, usually at the end of the
claiman t period, unless it is certain that estate assets far exceed po ssible claims.
For decedents dying after June 30, 2002, the Colorado Probate Code authorizes a family allowance of $24,000 for
a surviving spouse and/or minor children during the period of administration. This amount m ay be increased by
court order at the request of an interested person. The Code also provides for a $26,000 allowance to the surviving
spouse that is gene rally exe mp t from c reditors. W here the fam ily is entitled to the se allow ance s, they are pa id
before paym ent to creditors.
Under our Probate Code, the surviving spouse can take a portion (up to one-half) of the decedent's "net augmented
estate" instead of what they would otherwise receive under a will. The purpose is to prevent one spouse from
completely "disinheriting" the other. The augm ented estate includes both probate type assets (property passing
under a will or by intestacy) and non-probate assets (property passing outside of the probate estate such as joint
tenancy property, assets owned by a living trust, and some proceeds of life insurance). A spouse or child omitted
from a will m ay also h ave a right to take a share of the probate estate. A ll of these prov isions are te chnica l in
nature and, if applicable, should be discussed with the personal representative's attorney.
As personal representative, you are responsible for collecting and managing all probate assets prior to distribution.
W hat you can and cannot do may be specified in the will. Once you are appointed, you have full authority and
control ov er the asse ts whic h the de cede nt ow ned in h is nam e alone or as a co -tenant w ith others. Prop erty held in
joint tenancy with right of survivorship is not a probate asset; nor are proceeds of life insurance payable to a
nam ed ben efic iary other th an the esta te.
To p ut others on notice o f your auth ority, you sho uld hav e the de cede nt's assets registere d in the na me of the estate
with you as personal representative. This is completed by using your letters of appointment as evidence of your
authority.
For registered stocks and bonds, you will need to submit to the transfer agent your letters of appointment, along
with the securities a nd an a ffidavit of dom icile w hich ca n be ob tained from a broke r or bank. (If you n eed to se ll
securities to ra ise cash for estate ex pense s, you can do so w ithout hav ing the se curities rereg istered first. Bon ds in
bearer form need not be reregistered.) For real estate, you will need to use your letters of appointment as evidence
of your authority to sell or distribute the property.
Since the period of estate administration is relatively short, personal representatives generally don't establish a
long range investment program. While the estate must be made sufficiently liquid to provide for the payment of
debts, taxe s and e xpen ses, the esta te doesn 't necessarily h ave to b e reduc ed to ca sh to facilitate d istribution. As sets
ow ned by the dec eden t ma y be reta ined, if they're not sp ecula tive in natu re and a s long as th ere is prope r diversity
am ong the estate's investments.
The standard which Colorado law provides for investments is that of a "prudent man" managing the property of
anothe r. The statu te provide s in part:
2
The Prude nt M an R ule: In acq uiring, investing , reinvesting, ex chan ging, retaining , selling and m anag ing prope rty
for the benefit of others, fiduciaries (including personal representatives) shall be required to have in mind the
respons ibilities wh ich are a ttached to such o ffices, and the size, nature and ne eds of the estates e ntrusted to the ir
care, and shall exercise the judgment and care under the circumstances then prevailing, which men of prudence,
discretion and intelligence exercise in the managem ent of the property of another, not in regard to speculation but
in regard to the permanent disposition of funds, considering the probable income as well as the probable safety of
their cap ital.
Tax R esponsibilities: You mu st file the final income tax returns for the decede nt as well as any gift tax returns.
You are required to file a federal estate tax return (Form 706) if the estate is of sufficient size to require such a
filing. There is also a separate income tax return that must be filed for the estate.
W hen a person dies, his taxable year ends on the date of death and his income and deductions are reported through
that date. If the individual was married as of his date of death, there is an option available by which the estate can
join with the surviving spouse in filing a joint income tax return for that year in which the decedent died. You may
also be able to take certain deductions on the decedent's final income tax return or claim them as an expense of
a dm in istra tio n o n th e fe de ra l e sta te ta x re tu rn . If in do ub t a s to wh at e le ctio ns a re av aila ble or h ow to ta ke th em ,
consu lt with the attorney fo r the estate o r an acc ountan t.
As personal representative you must determine whether or not a federal estate tax return (Form 706) must be filed.
In de te rm in in g th is, y ou r o blig atio ns e xte nd be yo nd th e a sse ts o f th e p ro ba te esta te ; u nd er o ur e sta te ta x sy ste m ,
the taxable estate includes non-probate assets such as joint tenancy property, proceeds of insurance policies and
assets in trust. If the total value of all these assets exceeds $5,000,000 (2011), then these returns must be prepared
and filed no later than nine months after the date of death. As with the final decedent's income tax returns, some
election s and op tions are a vailable . These can m ean sign ificant ben efits and tax savings for the estate ; consult w ith
the attorney for the estate to see what options are appropriate in your situation.
The estate is a separate income tax paying entity and you must get a separate tax identification number from the
IR S. T o do this, file a request for a ta x identificatio n nu m ber thro ugh the district d irec tor of the IRS on Form SS -4.
Yo u will ne ed this nu mb er to open estate ba nk acc ounts as we ll as transfer sec urities into the n am e of the es tate if
they are to be held for any period of time. The tax return used for paying income taxes for the estate is called a
fiduciary income tax return. For the IRS, it's form 1041; for the Colorado Department of Revenue it's form 104:1.
The se form s m ust be filed if the estate ha s any tax able inc om e or has g ross incom e of $60 0 or m ore in any taxable
year.
The sam e form is used for incom e tax returns for trusts. In fact, you can even e lect to consolidate the living trust
tax return with the estate tax return.
W hat is a taxable year? As personal representative, you have the option of using the calendar year or a fiscal year
as the taxable year. To dec ide which on e to use, you'll have to carefully analyze the various implications to those
either rece iving asse ts from th e estate or those to w hom the inco me is payab le. If you're in doubt a s to wh ich is
mo st approp riate, consu lt the attorney for the estate or an ac coun tant.
The estate income tax returns must be filed on or before the 15th day of the fourth month following the close of
the taxa ble yea r (April 15 if yo u use the calend ar year). Y ou m ust pay th e entire tax due. A fter the seco nd yea r,
you m ust file income tax estim ates and m ake quarterly estimated tax paym ents.
A surety bond may be required by the terms of the will or by court order. Bond premium s are payable out of the
estate as an expense of administration. Should a default occur which the bonding company has to make good, the
company w ill have rights against you to the extent of this loss. W here bond is required, you may be able to make
arrangements with the court to reduce the amount of assets subject to bond (such as by depositing stock
certificates in the cou rt registry or estab lishing restricted bank a ccou nts).
Under the Colorado Probate Code your compensation, together with that of your attorney, is subject to a
reasonableness test, with time spe nt and responsibility as two of the mo st important factors. Many individuals,
especially family mem bers, choose to serve without compensation other than reimbursement of out-of-pocket
expenses. If you want to do this, consider filing a fee waiver with the court. If you take compensation, it will be
taxable as ordina ry incom e. If you take com pensa tion, keep a record o f tasks perform ed and am ount of tim e spen t.
This is also expected of your attorney.
The assets of the estate belong ultimately to the beneficiaries and not to you, and it is a good practice to make
distributions to beneficiaries as soon as this may be done prudently.
3
Ge nerally, the a ssets of the e state are p aid in the follo wing order:
a.
b.
c.
d.
e.
f.
g.
h.
I.
j.
to distribute as sets held b y the de cede nt in the de cede nt's capac ity as a trustee or other fiduc iary
to pay the statutory ex em pt property and fam ily allow ance s, if claime d and a llowe d, to close fam ily
me mb ers
to pay expenses of administration
to pay fun eral costs
to pay debts and taxes preferred under Federal law
to pay expense of last illness
to pay debts and taxes preferred under state law
to pay g eneral u nsecu red cred itors
to satisfy spe cific gifts unde r a will
to satisfy the residuary beneficiaries under a will or the heirs at law in the case of intestacy.
Distributions need not wait until the closing of the estate. Payments may be made as priority is determined. Partial
distributions are often made to beneficiaries during administration. If administration is supervised, distribution
ma y be m ade on ly follow ing a co urt hearing and ord er.
W hen administration is complete, the estate does not terminate automatically. Estates may be closed either
informally or by formal court order. If the formal closing of the administration and proposed distribution of the
estate is ap proved by the cou rt, the person al re presen tativ e is d ischarged or rele ase d from liab ility by c ourt order.
In inform al closing s, a closing sta tem ent is filed w ith the cou rt, indicating tha t the estate has be en fully
administered. This procedure does not result in a court order of discharge but does limit the time to one year
within which distributees and creditors can challenge your administration and distribution of the estate.
The Colorado Probate Code is intended to speed up the process of administration of estates. Since Colorado has no
inheritanc e tax, m any sm aller estate s (less that $5,00 0,000 in 20 11) m ay be a dm inistered an d distributed shortly
following the end of the credit's period (usually within six to twelve m onths). The Federal Estate Tax Return is not
due un til nine m onths afte r the date o f death if the g ross estate e xcee ds $5,000 ,000 (2011 ). Larger es tates shou ld
not be closed until accounts are settled with the taxing authorities, although partial distributions can usually be
ma de in the interim . If the tax and p robate a spects a re hand led in a tim ely and careful m anne r, the great m ajority
of larger taxable estates will be able to be closed within a two-year period.
As a persona l represen tative you are liable to the ben eficiaries for an y loss to the e state and for any ga in the esta te
should h ave rea lized bu t did not if:
! you failed for any reason to exercise the care and skill of a person of ordinary prudence in managing the
property of another, or
! you negligently or intentionally did something you ought not to have done, or
! you negligently or intentionally failed to do something you should have done.
In certain m atters, you m ay be lia ble eve n thoug h your im proper a ction w as not inte ntional or n egligen t.
W ords Of Caution: This memo cannot relate everything you may need to know about administering an estate.
You should establish an early understanding with your attorney as personal representative for the estate as to what
will be expe cted of you. If you have questio ns, co nsult prom ptly with your attorney . See king your attorney 's
advice before yo u act m ay avo id m ore costly legal serv ices later.
SO NOW YOU ARE A TRUSTEE
(excerpted from publications of the Colorado Bar Association)
You ha ve just agreed to be a trustee. You are now in charge of safeguarding the trust's valuable assets,
adm inistering the assets and investing them if appropriate, and distributing income and principal from the trust
according to the trust instrument. What does this mean? What are your responsibilities? What are your potential
liabilities?
"Living" (or inter vivos) trusts are contracts between the creator of the trust (often called grantor, trustmaker, or
settlor) and the trustee (often the trust creator). A testamentary trust is a trust created in somebody's will. In either
case, you must agree to be trustee. If you do agree, you are bound by both the specific terms of the instrument and
the general laws go verning trusts and trustees.
4
Trusts have thousands of uses, ranging from preserving a child's inheritance until they're an adult, to managing the
financial affairs of an elderly person, to running a large business. This memo is intended to give you a general idea
of what is involved. When you have questions beyond the scope of this brief explanation, consult the attorney for
the trust.
Yo ur authority c om es first from th e trust instrum ent. Yo ur duties an d pow ers as de scribed th ere are y our basic
instructions. R ead the trust instrum ent w ith care an d from time to time read it aga in. It may contain specific
provisions wh ich take precedence ove r the gen eral rule s sketc hed in this mem o.
Gene rally speaking, you as trustee have three kinds of duties to the trust and its beneficiaries:
1. A du ty of im partiality (not to fav or the interes t of one pa rty over an other)
2. A duty of undivided loyalty (not to put your own interest in conflict with those of the trust), and
3. A duty to administer the trust with care and prudence.
A first step may be to register the trust with the Probate Court in the county where the trust is being administered.
Re gistration m ust occu r within 3 0 days after the de ath of the T rustm aker un less the trust req uires im me diate
distribution to beneficiaries. There are penalties for failing to register a trust. Also, you should know that the trust
registration statement must be amended or updated whenever there is a change in trustee or in the place of
adm inistration of the trust. There a re court-ap proved forms for trust registration an d am endm ent.
Yo u don't hav e to provid e a cop y of the trust or disc lose the te rms o f the trust wh en you register it. Its purpose is to
ensure that beneficiaries are advised of their interests in the trust and to provide the trustee and beneficiaries
information as to the particular court where jurisdiction may be invoked in case questions arise about the
adm inistration o f the trust. Th e trustee m ust inform the ben efic iarie s of th e tru st registratio n an d its con tents.
The court generally doesn't have ongoing jurisdiction over the administration of the trust (unless provisions of the
trust require it) and the trustee d oesn't have to file copies of its accou ntings w ith the cou rt.
Colorado law gives beneficiaries the right (under certain circumstances) to move the place of trust administration
to a place more convenient for them. Should this occur and the place of administration is still in Colorado, a new
trust registration will have to be filed in the new county of administration.
You m ust always act to further the interests of the trust and the beneficiaries. You shouldn't enter into a transaction
where you might benefit at the expense of the trust. If a situation arises where there's a conflict between your
personal interests and the trust or between the trust and the interest of third parties, you should always put the
inte rests of th e tru st first.
For example, you should not sell trust property to yourself or sell your property to the trust because this might
induce you to take ad vantage of the trust. You should not loan trust funds to yourself for personal or business
purposes. The legal rules in this paragraph are strict and apply not only to transactions in which you would deal
directly with yourself, but also prohibit transactions in which you as trustee would deal with organizations, such as
partnerships or corporations in which you are personally interested. These rules apply even though the transaction
ma y be sc rupulou sly fair and e ven if it bene fits the trust.
You must keep trust assets separate and distinct from your own property. In other words, you should have a
separate bank account or accounts for the trust and not put either trust principal or income into your personal
accounts. Trust assets must be readily identifiable as such and should be segregated from your other property.
Once you have accepted the administration of the trust, you shouldn't turn over the complete administration of the
trust to others. T his does n't mea n you m ust actua lly perform all the adm inistrative w ork you rself; you ca n deleg ate
certain details to persons qualified to handle them. For exam ple, you can em ploy an agent to collect rents.
However, the ultimate responsibility for administration always remains with you as trustee.
If you are o ne of tw o or m ore trustees , you can 't rely on the othe rs to adm inister the trust. Y ou m ust participa te in
the administration. If another trustee is acting improperly with respect to trust matters, you have the obligation of
acting to correct the situation and you may be liable for the acts (or failure to act) of the other trustee.
If questions arise as to the proper interpretation of the terms of the trust, consult the attorney for the trust. If the
trust wo rding is am biguou s, it will likely be n ecess ary for the atto rney to pe tition the prop er court to ge t a court
ruling on the ma tter.
5
How should legal title to trust assets be taken? In whose nam e should real estate be held, securities registered and
bank acco unts m aintaine d? B ecau se of vary ing circum stance s and va rying opin ions on the right wa y to han dle
this, consult an attorney to decide how to hold title to trust assets.
As trustee, you must set up and keep a set of trustee's books. You don't need to be a CPA, but your records must at
least make a clear distinction between property you handle as trustee and your own property. Any mixing of the
two is strictly prohibite d.
One e ssential duty is to account to the beneficiaries of your trust. W hen you m ust account m ay be in the trust
instrum ent; if not, you m ust acc ount pe riodically, at lea st annua lly. At m inim um your ac coun t should refle ct in
detail all item s of cash re ceipts an d disburse me nts, procee ds from the sale o f assets an d distributions to
beneficiaries. It should show opening and closing cash balances and must contain a list of the trust assets at the
beginning and at the close of the accounting period. So be sure to list all assets received, held and disposed of, and
all receipts and disbursements, giving the date, amount and explanation of each.
If the persons who receive income under your trust instrument are different from those who w ill receive the
principal when the trust terminates, your records should classify all receipts and disbursements as income or
principal. In most cases, this will not be difficult; ordinary dividends and interest are clearly income, proceeds
from a sale of stock are principal. From records kept in the above manner, you or your accountant can draw
information nece ssary to prepare trust tax returns, reports to your beneficiaries and reports to the court if your trust
is under court supervision.
As a trustee, you are entitled to reimbursement of your reasonable expenses in the administration of the trust. You
are also e ntitled to a rea sonab le fee for servic es perform ed, but you 're not required to take on e. If you do, add this
to your other income on your personal income tax return.
M any trust instruments contain instructions to guide the trustee in resolving these and other accounting problem s,
and you may find all the guidance you need from this source. If not, the attorney for the trust can advise you by
applying the Colorado law called the "Uniform Principal and Income Act."
Pe rhaps y our most im portant duty, be side s ke eping acc urate and d eta iled boo ks, is kee ping trust as sets inv ested.
Rem ember that you will be held to a higher standard of care when investing as a trustee than you would be when
investing your own funds. The Colorado legislature has adopted a standard of trust investments called the
"Prudent Man Rule" which was quoted above.
Clearly this rule gives you the pow er to invest trust money in wa ys a prudent, cautious person wo uld invest
money. It imposes on you the standard of investment which a prudent investor would follow considering all the
circumstances involved. As a general rule, you should give due consideration to the value of the trust assets and
the purpo se of the trust a nd to the e xtent prac tical:
a. diversify the assets of the trust among many types of investments such as stocks, bonds, mortgages, etc.
b. diversify among various industries with your stock holdings
c. balance the need for current income versus long term capital appreciation since the persons who take current
incom e and th ose w ho eve ntually rec eive the capital ha ve con flicting interests
d. if you are at all in doubt, seek professional guidance both for initial investments and for continuing review of
investme nts.
YOU SHOULD NOT:
a. Spec ulate w ith trust assets in the hope o f ma king big p rofits
b. Lend trust money to yourself, no matter how good your security, buy trust assets for your own account
or engage in other forms of self-dealing
c. continue to hold an investment which no longer meets the "prudent man" standards
d. continue to hold ass ets transferred to you as trustee w ithout an in depe nden t investigatio n of their
quality as trust investm ents
e. delega te investm ent dec isions to othe rs
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To find out exactly what powers you have to carry out your job as trustee, talk to the attorney for the trust and
determ ine w hether the trust is governe d by the Co lorado F iduciaries ' Powe rs Act. If this act d oes no t apply yo u are
governed in your pow ers only by the terms of the trust. In addition to the terms en ume rated in the trust, you also
have all pow ers "necessary and ap propriate" to carry out the terms of the trust. If the Colorado Fiduciaries'
Powers Act is applicable, you have the powers under the Act to the extent reasonably necessary to administer the
trust except as limited by the trust instrument. Should any conflict arise between the powers in the trust instrument
and tho se und er the A ct, you sho uld favor tho se in the trust instru me nt.
If you are acting as a co-trustee, keep in mind that all co-trustees must be in agree me nt in the exercising of trust
powe rs unless the instrument itself directs otherwise. More imp ortantly, rem em ber that you can't delegate those
acts which you personally should perform as trustee.
Courts are very strict with trustees. Sometim es the trust instrument grants you broad powers or purports to relieve
you of responsibilities which you would otherwise have, but you still have a duty to exercise the powers fairly and
prudently.
You may, as trustee, have an obligation to file fiduciary income tax returns with both the Internal Revenue Service
(Form 1041) a nd the C olorado De partm ent of R even ue (Fo rm 1 04:1). Th e obliga tion arises if the trust is n ot a
grantor trust (such as a revocable living trust during the life of the trustmaker) and had "any taxable income" or
"gross incom e" o f $600 o r m ore, regardless of th e am oun t of ta xable incom e in any taxable year.
You m ay wa nt to ask an attorney or accountant for help in determ ining the need for and in preparation of these
returns as they do differ substantially from personal income tax returns. Quarterly tax deposits are often required
of trusts. As w ith an indiv idual taxp ayer, a trustee mu st file annua l returns on a calend ar year ba sis and the return
must be filed, and all taxes paid, by April 15. Extension to file (but not pay taxes) are available.
As an individual, you have your Social Security number which you use as an identification number on your
persona l tax returns. W ith a trust, it is usually necessa ry to get a "ta xpay er em ployer ide ntification nu mb er"
(FEIN ) from the District D irector of the Inte rnal R even ue Se rvice. Th is num ber w ould be used on your fiduc iary
income tax returns and when reregistering securities in your name as trustee or when setting up bank accounts for
the trust. An attorney or accountant should be able to tell you if getting a number is necessary.
W hen an d how do the be neficiaries o f the trust receiv e m oney ? Y our trust instrum ent shou ld tell you w ho is to
receive benefits and when they are to be paid. It may also give you certain discretionary power over distribution.
You should attempt to carry out the intent of the person who created the trust if that can be determined from the
trust instrument. You also must consider the assets of the trust, the amount of income, the needs of the
bene ficiaries and the variou s other dema nds the trus t mig ht be ca lled upo n to m eet.
As trustee, you are personally liable to the beneficiaries for any loss to the trust estate and for any gain the trust
estate sh ould ha ve realiz ed but d idn't, if:
!
You failed, for any reason, to exercise the care and skill of a person of ordinary prudence in managing the
property of another, or
!
You negligently or intentionally did something you ought not to have done, or
!
You negligently or intentionally failed to do something you ought to have done.
In certain matters, you may be liable even though your improper action was not intentional or negligent. Many
trustees find errors and omissions insurance worthwhile.
W ord O f Cau tion: This m em o cann ot tell you e verything you ne ed to kn ow about a dm inistering a trust. It is
intended to alert you to your duties and to impress you with your responsibilities. W hen you're uncertain about
som ething, co nsulting w ith the attorne y for the trust m ay avo id person al liability and the nee d for m ore costly
legal serv ices later.
©) 2011 by Stewart W. Fleisher
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